As you make decisions about mortgages, keep these important terms and our tips about them in mind.
Type and Term
While closed mortgages ranging from 6 months to 5 years are the most common, a few lenders have terms up to 15 years. Typically, 6 month and 1 year mortgages can be open or convertible. A true open mortgage can be paid in full at any time without penalty, while a true convertible mortgage can be changed to any longer closed term with the same institution, and this privilege has no penalty.
This period protects ones interest rate in times of market instability. Sixty day rate guarantees are most common. 120 day rate guarantees can be negotiated and this provides peace of mind when entertaining a long closing. Meanwhile, the borrower will benefit from any rate drops in the interim. If your mortgage is up for renewal, the lender typically can set your new rate 30 days prior to the renewal date.
On the anniversary of your loan, one is typically allowed to make a lump sum payment of 10-15% of the original loan amount. Increasing your monthly or bi-weekly payments by the same percentages is also allowed. These extra payments directly reduce the principal outstanding; subsequently, one has shortened the amortization. Negotiating a 20% prepayment is not uncommon, as well as being allowed to make this payment at any time.
Weekly and Bi-Weekly Payments
For the most part, all lenders offer this. It is important, though, that one expresses their wish for accelerated payments. In effect this will equal one extra monthly payment per year, and will reduce your amortization period from 25 years to approximately 20 years. You will be mortgage-free 5 years sooner!
This is very important for long term mortgages. If your mortgage is not up for renewal or open, you can transfer it to another qualified property. This will allow you to avoid discharge penalties.
Interest Adjustment Date
I.A.D. is usually an unexpected expense for most new buyers. Usually mortgages commence on the first of the month; therefore, if you are closing in the middle of the month, unpaid interest is due from that date to the end of the month. This adjustment is deducted from the advance on closing day.
Rala Investments Ltd
1200 Lynn Valley Road Suite #301
North Vancouver, BC, V7J 2A2
Monday – Friday: 9:00 AM - 5:00 PM
North Vancouver mortgage broker proudly providing a variety of mortgages, loans, and other financial assistance to the following areas in the Lower Mainland:
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